Sweetwater Corporation Declared a Stock Dividend to All Common Stock

question 98

Essay

Sweetwater Corporation declared a stock dividend to all common stock shareholders of record on December 31, year 1.Shareholders will receive one share of Sweetwater common stock for each five shares of common stock they already own.Pierre Dorgan owns 500 shares of Sweetwater common stock, with a tax basis of $150 per share.The fair market value of the Sweetwater common stock was $90 per share on December 31.What is Pierre's income tax basis in his new and existing common stock in Sweetwater, assuming the distribution is nontaxable?

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Definitions:

Microsoft

A multinational technology company known for producing software, consumer electronics, personal computers, and related services.

Antitrust Laws

Laws designed to promote fair competition for the benefit of consumers, by regulating anti-competitive practices and promoting market fairness.

Consent Decrees

Legal agreements that settle disputes between parties without admission of guilt, often used by regulatory agencies to enforce compliance.

Sherman Act

A foundational antitrust law in the United States that prohibits monopolistic practices and promotes competition.